Fed rate hike unlikely to spook the Sensex. Here’s why

The `NaMo government can heave a sigh of relief as analysts do not expect the US Federal Reserve’s stimulus tapering to substantially impact the Indian stock market.

“The US Federal Reserve’s decision to raise interest rates will have a short-term impact on the capital markets. The markets will get a hit when the Fed Reserve raises interest,” said currency expert Sudip Bandhopadhyay, president of Destimony Securities Pvt Ltd.

According to analysts, the Indian market will continue to perform strongly as India continues to remain attractive amongst emerging economies. Also, market experts believed that the size of the market is large, which will provide a cushion against the impact. “We have a large number of retail investors, social investors as well as high networth participants in the capital market, which is why the market is well prepared for the tapering,” said Rohit Gadia, CEO of CapitalVia.

Interestingly, the first hike by the US Fed is expected to happen by the end of 2015. which Vivek Gupta, director research, CapitalVia Global Research Limited explained that the US Fed is heading to raise interest rate soon, but not immediately. “The rate hike would be expected in September rather than June when the Fed is more confident about inflation and labour market condition,” he averred.

Talking about his projections for the stock market, he estimated that since the market has been trading strongly, traders could sell when the Nifty Futures is around 9000 points. It should be noted that the Indian stock market opened on a positive note on Thursday. The Sensex was up by 334.17 points at 28956.29 and the Nifty was up 93.10 points at 8779.00. The Nifty Futures was trading at 8745 points.

In terms of the sectors, while analysts expected negligible impact, they also suggested that traditional sectors such as infrastructure, capital goods will see some downward movement. Experts suggested that the stocks in these sectors will be impacted as FIIs are expected to pull out especially when the tapering happens.

However, export based sectors such as IT and pharmaceutical are expected to do well as the hike will adversely impact the rupee value. Commenting on the issue, Bandhopadyay suggested that he did not expect the rupee to cross 64 a dollar mark. “The Reserve Bank of India has done enough work and they will not allow rupee to tumble down. We are expecting the rupee to trade between 62-64 mark,” he stated.

It should be noted that the US Fed has reaffirmed that it will hike the interest rates only after it assesses labor market conditions, indicators of inflation pressures and inflation expectations. “Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range,” the Fed said in a statement.